Plan to shed light on shadowy mining deals

Global trade in “conflict diamonds” may seem a long way from accounting rule making, however the two subjects converged last week with proposals which could force mining and oil companies to reveal shadowy pay­ments to resource-rich nations.

The International Account­ing Standards Board last week released a discussion paper which could lead to a global set of accounting rules for mining and oil companies.

Compiled by senior accountants in Australia, Canada, Norway and South Africa, the paper explores whether extractive industries should adopt country-by-country reporting. Under the proposals, mining and oil companies would report royalty, tax, bonus and licence fee payments for each of their host nations.

The 184-page report represents the culmination of a long-running international campaign to force companies to reveal how much they pay foreign governments.

It followed a 1999 landmark report A Crude Awakening, by humanitarian group Global Witness, which showed that wealth generated from oil and mining companies in Angola helped fuel the nation’s civil war and prop up a corrupt administration.

Following this study, a handful of UK-based humanitarian groups banded together under the banner Publish What You Pay (PWYP) to campaign for greater financial transparency from oil and mining companies.

Most multinational businesses aggregate their costs, which makes it near impossible to define exactly how much they pay host nations.

PWYP, now a global operation, wants international accounting rules to be a vehicle to force extractive industries to reveal how much they pay governments around the world. The coalition was intimately involved in the production of the discussion paper but last week said it was disappointed by the outcome.

The IASB, which must justify any new accounting rules by their relevancy to the investor community, said there was some demand from investors for the added information but said there is a risk the new measures will prove too costly and complex.

“The project team notes that further study is required to conclude on whether the country-by-country disclosure of payments to governments is justifiable on cost-benefit grounds,” the report stated.

Vanessa Herringshaw, dir­ector of Revenue Watch and a member of PWYP, dismissed these concerns and pointed out that some companies voluntarily publish a limited form of country-by-country data.

“Companies have this information anyway,” she said. “They have to have it in order to report their payments and revenue in countries…if they are claiming they don’t have it one could question whether they have adequate management information.”

Bob Garnett, board member with the IASB, said there was a risk financial reports would become too lengthy. “The trouble is that with most information, we ask ‘would [investors] like more’ and the answer is always ‘yes’,” he said.

Before his appointment to the IASB Garnett worked with one of the world’s largest mining companies, Anglo American plc, where he tried to avoid trading in so-called conflict diamonds, which fuel civil war and corruption in developing nations.

He dismissed concerns that the information would prove too difficult to capture. “What we are looking for is anything that is controlled by state officials…and collecting all of that data will take some time, but it can be done,” he said.

By the end of 2010 a ­decision will be made on whether to add the PWYP proposals to the official IASB agenda, a major step towards it becoming a global standard. However any final standard could take years to create, approve and finally be adopted.